A Closer Look: Kaiser Family Foundation Analysis of Costs in MA

James Michel

Last month, the Kaiser Family Foundation released a report examining differences in government spending on Medicare beneficiaries who switched out of original fee-for-service (FFS) Medicare and into Medicare Advantage (MA) and those who remained enrolled in FFS Medicare.  Specifically, the researchers identified about 400,000 people who were in FFS Medicare in 2015 but opted into MA in 2016 (the “switchers”) and compared government spending on them while they were in FFS in 2015 to government spending on the population who remained in FFS Medicare in that same year (“the stayers”). The analysis found that in 2015, on average, government spending on the switchers was 13% lower than spending on the stayers. The authors conclude that these findings could indicate that Medicare Advantage plans, whose payments are based on expected average FFS beneficiary costs, may be overpaid because switchers had lower costs than stayers in 2015. Further, the authors suggest that their findings may warrant broader reform to MA payments.

However, this conclusion is not well-supported by the findings of the analysis, and this blog seeks to explain why.

The Study’s Sample is not Necessarily Representative of the Broader MA Population

First, the analysis is based on a small sample of switchers in a single year and cannot be generalized to the broader FFS or MA populations. In 2016, 18.4 million people were enrolled in MA. The 400,000 switchers analyzed in this study represent 2.5% of the MA population that year. Cost trends among this sample are not necessarily reflective of the broader and more diverse MA population. Moreover, the fact that their results vary substantially in a positive and negative direction in major urban markets (see Figure 6 in the report) suggests that external factors unrelated to FFS spending may be driving the results (e.g., local environment, economic demographics, lifestyle and health choices). For example, in Portland, Oregon, average spending on MA switchers was more than $3,200 higher than FFS stayers, and in Charlotte, North Carolina, average spending on switchers was more than $4,000 higher. The study does not discuss what may be causing this phenomenon.

The Study Does Not Examine MA Beneficiary Cost Trends Over Time

Second, while the study finds that average FFS spending on switchers was lower than on stayers in a given year, it does not look at what happens to those cost trends over time, following enrollment in MA. A change in behavior could lead to lower spending once these switchers enroll in MA, which often uses different care models than in FFS. The authors presume there would be no change, and they lead the reader to assume this, yet this study did not show this. Existing research that has looked more closely at the care delivered within MA has found that MA enrollees experience better outcomes and lower overall costs than those in FFS Medicare. The body of evidence around the impact of plans’ coordination and management of care, particularly for those with chronic conditions, is established and growing.

Medicare Advantage is Providing Value to Beneficiaries and Taxpayers

Finally, policymakers should recognize how Medicare Advantage is working for beneficiaries and taxpayers. Perhaps a more appropriate question to answer is, “Are beneficiaries and taxpayers deriving value from the MA program?” The answer to that question is increasingly, “yes”:

• Studies continue to show that the highest-need beneficiaries receive higher-quality care than those in FFS Medicare. Those with multiple chronic conditions rate better on a range of quality measures that matter most to patients: they have fewer avoidable hospitalizations, fewer readmissions, more healthy days at home, and better mortality rates. These results are reflected in the opinions of beneficiaries who report high rates of satisfaction and low disenrollment rates.
• MedPAC recently reported that average payments to MA plans in 2017 were equal to spending in FFS Medicare, demonstrating that the government is spending the same on a beneficiary regardless of whether they are in FFS or MA. Payment parity has been a long-standing goal of policymakers, and the policies enacted since the passage of the Affordable Care Act have achieved that goal. To suggest otherwise looking at a slice of the population in 2015 ignores these achievements.
• Thanks to new policies enacted by Congress and the Administration in recent years, MA plans have additional tools and flexibilities to better target benefits to those with the highest needs and tailor care in a person-centered way. In 2019 alone MA plans are experimenting with expanded supplemental benefits, such as meal delivery, transportation, and support for caregivers of enrollees. In 2020 they will have an even greater ability to address the needs of the chronically ill by offering them non-medical benefits that address social determinants known to impact overall health.

So, while the study does raise an interesting question as to the inherent differences between those who actively choose Medicare Advantage as their preferred option and those who don’t, it does not fully support some of the claims, suggestions and conclusions made throughout. There are issues in the MA payment system that policymakers could address. Efforts should be focused on making improvements where they are needed most and continuing to build upon what we know is working in MA.